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The Political Economy of the Egyptian Uprising

Stephen Maher (smaher85 [at] gmail.com) is a freelance writer from Washington, DC. His work has appeared in the Guardian, the International Socialist Review, Truthout, and elsewhere. His website is http://rationalmanifesto.blogspot.com.

Not long after Egyptian Vice President Omar Suleiman announced that Hosni Mubarak would resign his post as President, U.S. Secretary of State Hillary Clinton flew to Egypt to congratulate the Egyptian people on a job well done. The revolutionaries had accomplished their goal, she said. Everyone could go home and feel proud of their historic achievement and leave the cleaning up to the responsible adults—the United States and the closely allied Egyptian military, which has ruled Egypt since 1952. To prove that there were no hard feelings against the Egyptians for overthrowing one of the closest and most important U.S. allies in the Arab world, the IMF, World Bank, the G8, and the United States itself—the very entities responsible for supporting Mubarak’s thirty-year rule and imposing draconian neoliberal programs on Egypt—have extended as much as $15 billion in aid and credit to Egypt and Tunisia to assist in their transitions to democracy. This generosity begs the question: why are Western governments, and the international financial institutions (IFIs) that are closely linked to them, falling over one another to show their generosity to the revolutionaries and to display their support for progress in the Middle East?

Western ideological systems and establishment propaganda in Egypt have largely reproduced Clinton’s implicit message of “bad” versus “good” capitalism: Mubarak and his gang of “corrupt” associates have been driven out, and now the system’s benevolent equilibrium can be restored by replacing the bad guys with good guys chosen through elections overseen by the U.S.-backed Egyptian army. Accordingly, as recent events make clear, the commitment of IFIs and Western governments to “social justice” comes predicated on continuing the neoliberal transformation of Egyptian society that has been underway for decades. But is the problem the Egyptians face merely a long series of corrupt anomalies, or the system as such? Is a liberal capitalist democracy adequate to meet the demands of the revolution? And is there the potential for something more? Here we cannot avoid the essential question: how does the Egyptian uprising and the new reality it is helping create relate to global capitalism?

The Egyptian revolutionaries are directly confronting the rule of capital, consciously or not. Afraid of the consequences if the movement turns explicitly anti-capitalist, Western governments and IFIs have worked to ensure Egypt remains integrated into the global capitalist system. The “generosity” of the West serves as a means to establish powerful leverage over Egypt’s future. By keeping it indebted, the power to shut off the credit spigot can be used to keep Egypt closely linked to foreign capital and strengthen the rule of the Egyptian Army and allied bourgeoisie in the face of popular upheaval. These measures are being carried out under the veil of an orderly transition from Mubarak’s rule, economic assistance for the poor, and free and fair parliamentary elections. In enacting them, the West and its allies within Egypt are attempting to demobilize the popular uprising and limit the potential of the revolution to reshape Egyptian society.

Egypt’s Neoliberal Transformation

Since the death of nationalist leader Gamal Abdel Nasser thirty years ago, Egypt has embarked on a process of neoliberalization, largely at Western instigation. In bringing Egypt out of colonialism and feudalism, Nasser created an authoritarian and highly centralized economy. After Egypt’s crushing defeat by Israel in 1967, his successor, Anwar Sadat, signed a peace treaty with Israel in 1978 with Washington’s sponsorship, opening the door to Egypt’s inclusion within the U.S. imperial system. U.S. aid to the Egyptian regime grew rapidly, while Sadat commenced a policy of infitah (or openness) that set in motion Egypt’s neoliberal transformation and tied its economy to international capital, a process accelerated by Mubarak after Sadat’s assassination in 1981. When the Egyptian debt crisis of 1982–90 forced it to go to the multinational Paris Club to restructure its debt, the IMF imposed a neoliberal structural adjustment program as a condition for continuing the flow of credit. The IMF conditions forced the government to cut spending on social services, relax price controls, cut subsidies, deregulate and privatize industries, target inflation, and liberalize capital flows. This program would break the powerful Arab Nationalist regional solidarity of the Nasser years and consolidate the power of a ruling class linked to global capital, with whatever disastrous consequences that entailed for the lower classes.

This transformation had wide-ranging implications for social relations in Egypt, including growing inequality, poverty, and social insecurity for the lower classes, as well as the violent exclusion of the millions who were condemned to abject misery. The neoliberal state dismantled social protections, gutting and privatizing Egypt’s health care system and other social services along with many of the state-owned industries. During Mubarak’s rule alone, food subsidies were reduced by more than 50 percent, while privatization frequently meant “less job stability, longer hours, and a lower standard of social services for workers,” as a recent report by the Solidarity Center indicates; this was a rather effective means for disciplining the labor force.1 Indeed, according to the International Labor Organization (ILO), Egypt ranks as one of the twenty-five worst violators of labor rights worldwide. By contrast, political allies of the regime benefitted tremendously from such privatization schemes. State assets were handed over to a domestic oligarchy that included many members of the Army’s officer class, forming a new capitalist class closely linked to the state apparatus. The establishment of both a debt cycle through which Western financiers extracted vast wealth from Egypt and growing Foreign Direct Investment meant that vast new surpluses extracted from Egypt’s laborers were divided between the new Egyptian ruling class and their Western backers.

There was considerable economic growth in Egypt under Mubarak. Gross Domestic Product (GDP) per capita rose about fourfold between 1981 and 2006 (in purchasing power parity terms, which is a method of comparing economic activity among countries by keeping the current currency exchange rates among the countries constant). However, this growth was accompanied by rising inequality that “reached levels not before seen in Egypt’s modern history” by the time of Mubarak’s resignation.2 Despite increases in production and wealth, real wages did not rise in tandem, and in many cases actually declined. Egypt’s minimum wage, for instance, has remained unchanged for twenty-six years in the face of increased productivity and significant inflation, particularly in the price of wage goods. Most workers work long hours (according to the ILO, the average Egyptian works forty-eight hours per week) and earn a wage that will not pay for basic necessities. It is not uncommon for employers to simply not pay their employees at all. In short, the neoliberal programs served to consolidate the power of Egypt’s ruling class and concentrate the country’s vast new wealth in the hands of the richest, who gained an increasing portion of a rapidly growing pie while the lower classes saw their share decline (see Charts 1 and 2 for details).

Chart 2. Poverty, Unemployment, and Malnutrition in Egypt, 2000–2008

Nor did existing institutional arrangements provide the workers with a means to redress their grievances. Apart from the undemocratic nature of the state apparatus, the Egyptian Trade Union Federation (ETUF), though ostensibly the representative of the workers, was dominated by the regime and had supported the neoliberal privatization schemes that were so disastrous for labor and the poor. After Prime Minister Ahmad Nazif and his reform cabinet took office in 2004 and began imposing the neoliberal program with renewed vigor, growing inequality and exploitative social relations increasingly drove workers to exercise leverage against the ruling class from within their workplaces.

An unprecedented wave of strikes and pickets—opposed by the ETUF—began to affect production: between 2004 and 2010, there were more than 3,000 labor actions in Egypt. The clothing and textile sectors were the first to be hit by strikes, but building workers, transport workers, food processing workers, and even the workers on the Cairo metro system soon followed. Anger at existing social conditions grew when food prices jumped 24 percent during the 2007 world food crisis, triggering massive bread riots. With 55 million people—roughly 75 percent of the population—spending the majority of their income on food, working-class consciousness began to shift dramatically: fear of the dreaded internal security forces was overcome by hunger and desperation. Contrary to the neoliberal principles adopted by the regime, the state was forced to implement an expanded subsidy program in order to stabilize prices.

Meanwhile, a remarkable labor movement began to take shape in Egyptian industrial towns like Mahalla. In 2006, the 25,000 workers employed by Misr Spinning and Weaving struck, in the largest labor action before Mubarak’s ouster. Again, on April 6, 2008, a demonstration in Mahalla grew to thousands within hours, an action that “riveted the country” and “shook the regime to its core,” in the words of former regime officials.6 Protestors marched through the streets chanting anti-Mubarak slogans, clashed with police, torched vehicles, and triumphantly pulled down a picture of Mubarak. The action was a tremendous success, winning bonuses and pay hikes. Perhaps more importantly, the protest spawned what became known as the April 6th Movement, which attracted a large number of youth supporters on Facebook, the genesis of the powerful alliance that would bring revolution to Egypt and topple a dictatorship a few years later. The movement continued to build steam in late 2009, as municipal tax collectors staged a 10,000 strong, three-day long sit-in in the streets of Cairo, winning a 325 percent wage increase and the right to form an independent labor union, the first in Egypt’s modern history. In 2010, workers from over a dozen workplaces established “a permanent presence of working-class dissent in downtown Cairo,” undertaking a several-month long sit-in across the street from the Parliament.7

Predictably, neoliberal financial institutions showed little sympathy for the victims of their policy prescriptions. Despite the ruinous consequences of these measures for the lower classes, the IMF and World Bank consistently held up Egypt as a model for neoliberal reform. Mubarak’s Finance Minister, Youssef Boutros-Ghali, was named in 2008 to be the Chairman of the IMF and Financial Committee. In September 2009, the World Bank proudly named Egypt one of “the world’s 10 most active reformers” for the fourth time. In February 2010, just days prior to the revolutionary uprising, the IMF issued a glowing report on the Egyptian economy, declaring that “economic performance was better than expected” and praising the government’s “careful fiscal management.”8

Not mentioned in the World Bank’s “ease of doing business rankings” or the IMF evaluation was the fierce state repression of opposition to the neoliberal project. Despite rhetoric about individual freedoms, the imposition of neoliberalism required state coercion to discipline labor and subdue the poor, while also containing dissent among the educated middle class. Since the assassination of former President Anwar Sadat in 1981, Egypt has been under a continuous State of Emergency, which has permitted the Egyptian state apparatus to “engage in massive and often systemic labor rights violations,” while torturing and even murdering regime critics.9 The legal restrictions placed on NGOs have also permitted the government to target labor organizations, often shutting them down by force.

But despite such repression, the growing social movement, unparalleled in the modern history of the Middle East, was reinforced and broadened as the growing availability of new technologies linked together factories and forged bonds between socialists, internet activists, and workers. Though internet and cellular phone technologies were practically nonexistent in Egypt in 2000, by 2009 20 percent of Egyptians had internet access and 70 percent of the population had cellular phones. Ever-wider swaths of Egyptian society became aware of the gathering momentum of the movement, and expanding mental conceptions of the revolutionary potential for the future began to take hold. A young, educated, urban middle class, whose desire for free individual self-expression was enhanced by the proliferation of a blog culture that was largely beyond state control, was exposed to the growing worker resistance movement both online and physically in the streets of Cairo, Mahalla, and elsewhere. Changing consciousness and technologies interacted and made possible the movement’s radically democratic organizational form, as the liberating potential of the technological base was increasingly realized. The decentralized, unregulated social linkages promoted by the explosion of new technologies clashed directly with the existing structure of social relations. The alliance between the nascent urban youth movement and the workers began to take shape.

Thus emerged the critical antagonisms that drove the revolutionary social transformation. The state apparatus forcibly imposed neoliberal policies that exacerbated class conflict and created a social crisis as real wages fell below subsistence levels. Meanwhile, new technologies linked together the disaffected, exploited, and marginalized, expanding conceptions of the bounds of the possible. This new consciousness and the non-hierarchical character of the technologies employed were reflected in the growth of a movement with a horizontal and decentralized organizational form. Simultaneously, disruptions erupted within the production process as increasingly empowered workers sought to apply pressure to the ruling class and an unresponsive, authoritarian state apparatus through strikes and demonstrations. Likewise, a young, educated, urban middle class chafed under the authoritarian institutional configuration of the state apparatus. And with each victory of the new democratic social movement, the terror used by the state coercive apparatus to maintain order began to crumble and the sense of popular empowerment grew.

The Revolution: Tensions and Antagonisms

In the year leading up to the revolutionary uprising, food prices in Egypt jumped another 30 percent, despite increased government subsidies put in place after the 2008 riots.10 This rapid rise in prices was at least partially driven by the decision of the United States Federal Reserve to undertake a nearly $2 trillion Quantitative Easing program, flooding the market with liquidity and inflating the prices of assets valued in dollars. This meant a sharp rise in commodity prices, which hit poorer countries the hardest. As David Harvey argues, capital cannot solve its crisis tendencies but merely moves them around. In The Enigma of Capital, Harvey emphasizes that it is important “to recognize this perpetual repositioning of one barrier at the expense of another and so to recognize the multiple ways in which crises can form in different historical and geographical situations.”11 Seeking to stabilize the system in the midst of the 2009 crisis, Western financial institutions simply relocated it: the uprisings that spread across the Middle East were partly fueled by this spike in inflation (the inflation rate in Egypt doubled in 2009).

The success of the nonviolent revolution in Tunisia led to further radicalization of Egyptians, particularly among the urban middle class, encouraging them to join the workers in their growing opposition to the regime. The tens of thousands who protested in Cairo on January 25 would soon grow into a semi-permanent mass gathering of hundreds of thousands in Cairo’s Tahrir Square as word and images of the popular explosion spread via technologies such as Twitter, Youtube, and Facebook. In Tahrir, protestors effectively suspended the power of the state, as an organizational form adequate to the new technological base emerged.

The non-hierarchical character of these technologies was reflected in the horizontal, leaderless organizational form the uprising took on that challenged the authoritarian structure of state institutions both explicitly, through the act of nonviolent civil disobedience, and implicitly, by putting into practice an alternative model of social organization that was genuinely anarchistic and radically democratic. Seeking to inhibit the movement by gaining control of its technological supports, on January 26 the Mubarak regime shut down much of Egypt’s internet, followed shortly by the cutoff of cellular communications. Meanwhile, in an attempt to prove the inadequacy of the revolutionary model to maintain social harmony in the absence of authoritarian state institutions, the regime pulled the police off the streets, many of whom were then paid to loot shops and cause mayhem and violence.

Yet such efforts proved unsuccessful. The technologies employed by the movement were in their very essence antithetical to such rigid authoritarian control. In a desperate effort to stop the spread of the movement, the state unleashed a wave of violence on the demonstrators, both from the baltagiya (civilian thugs paid by the regime) and from paramilitary sniper units linked to the Ministry of the Interior. According to a subsequent judicial inquiry, nearly 900 people were killed, mostly shot through the chest and head by police snipers, while 6,400 were injured by the baltagiya.12 In the face of this onslaught, community defense units spontaneously sprang up, protecting the public from such attacks by implementing a network of checkpoints. Since all Egyptians are required to carry an ID card on which is printed one’s occupation, it was easy for those manning the checkpoints to discern who were with the police and take appropriate measures to protect their fellow citizens. The protestors had proven that the authoritarian state institutional apparatus was not only unnecessary and unwanted, but also inferior. They proved a better world was possible.

The protests in Tahrir Square were supported by disruptions in production that brought the Egyptian economy to a halt. Apart from the evaporation of tourism revenues (6 percent of GDP), many shops and factories closed, along with Egypt’s banking sector, for much of the three weeks of protests that led Mubarak to step down. The freezing of production and the accompanying devaluation of assets made the uprising a costly endeavor for the ruling class. Despite the urgings of the army that people “get back to work and to get paid, and life to get back to normal,” for the most part production remained at a standstill, at a cost of at least $310 million per day according to the Credit Agricole Bank.13 Mahalla workers, for instance, joined a huge nationwide general strike that began on February 9, crucially reinforcing the popular demonstrations in Cairo and elsewhere and hastening Mubarak’s fall. Work stoppages also erupted in government banks, the oil and gas ministry, the transportation sector, the telecommunications ministry, the health ministry, and elsewhere in cities across Egypt.

On February 11, after several attempts to quell the uprising by making cosmetic changes to the regime, Omar Suleiman (who was the head of the dreaded internal security forces but made Vice President by Mubarak as a concession to the protestors) announced Mubarak would step down. But immediately after Mubarak’s fall, workers made it clear in strikes engulfing Egypt that they did not consider the revolution complete, alarming capital both within Egypt and internationally. Most dramatically, soon after Mubarak’s resignation 5,000 employees from the Tawfiq al-Nour department store chain marched on Cairo from across Egypt, winning a twelve-hour workday and a significant pay increase. “This is the time to act,” said one labor organizer, “we want an overthrow of this whole system, not just the removal of one person.”14

The Future: Promise and Pitfalls

The continuing labor actions and the frantic, fearful response of capital make clear that in the uprising, the demonstrators challenged more than just the Egyptian regime: they also confronted an imperial United States and global capitalism itself. Since the Second World War, U.S. policy has aimed to maintain control of regional energy supplies, the largest in the world. Local leaders like Mubarak are supported and allowed to accumulate significant wealth and power for themselves. In return, they agree to operate within a global framework dominated by the United States and serving its strategic and economic interests. The critical U.S. objective in Egypt is to prevent the emergence of a regime that would challenge the hegemony of the United States in the Middle East or implement an alternative, non-capitalist social model that could become an example for others. In Egypt, an important center of Arab cultural life, the prospect of the emergence of a socialist or anti-imperialist regime surely frightens power centers in the West.

As Naomi Klein documents in The Shock Doctrine, the IMF, World Bank, and other IFIs often take advantage of crises (as in the Egyptian debt crisis of 1982–90) to impose anti-democratic neoliberalization schemes on “shocked” and unsuspecting populations. The purpose of the proposed loans and other aid to Egypt—totaling as much as $15 billion—is to consolidate the power of the capitalist class and the army under the guise of an orderly transition. These “responsible” leaders are determined to continue the neoliberal drive, albeit behind a façade of free elections and a more restrained state that accommodates individual self-expression and allows the right to form political parties. Indeed, an assumed precondition for the release of the loans is the continued privatization and liberalization of Egypt’s economy. As the IMF said in a report to the G8 summit of May 26–27, Egyptian “government policies should support an enabling environment in which the private sector flourishes.”15

Despite the long struggle laid out above, according to the Western ideological narrative the Egyptian uprising was largely directed against a handful of corrupt individuals who prevented capitalism from functioning properly, and therefore demanded the imposition of “normal,” “democratic” capitalism. From this perspective, the Egyptian revolution was pro-market! Keeping to this carefully constructed narrative, President Obama announced a $1 billion debt swap (widely misreported as debt forgiveness), in which the United States agreed to reduce Egypt’s debt burden so long as Egypt agrees to use the money in accordance with Washington’s wishes. And Obama made it crystal clear just what those wishes are:

…the goal must be a model in which protectionism gives way to openness, the reigns of commerce pass from the few to the many, and the economy generates jobs for the young. America’s support for democracy will therefore be based on ensuring financial stability, promoting reform, and integrating competitive markets with each other and the global economy.16

The debt cycle is another mechanism through which international lenders chain Egypt to global capitalism and compel its government to proceed with neoliberal reforms. By perpetuating the cycle of debt, whereby Egypt needs constant access to new credit in order to service its long-term debts, Egypt will have to do whatever is necessary to keep new loans coming in. This debt cycle results in an outflow of capital from Egypt to international lenders. Between 2000 and 2009, net transfers on Egypt’s long-term debt (the difference between received loans and debt payments) reached $3.4 billion. In the same period, Egypt’s debt grew by 15 percent, despite the fact that it repaid a total of $24.6 billion in loans (Chart 3). This self-reinforcing cycle of dependency, which redistributes billions from Egypt’s poor to Western financiers, gives these institutions tremendous leverage over Egypt’s government. This, despite the fact that much of this debt is what is referred to as odious debt, contracted by an unelected dictatorship with the encouragement of the IMF, World Bank, and others. Mubarak’s inner circle and the capitalist class were enriched to the tune of billions of dollars, while millions of Egyptians were kept in desperate poverty.

Keeping the economy open to foreign investment by eliminating trade barriers and capital controls is another way to keep Egypt on a short leash, establishing what is often referred to as a “virtual parliament.” If the Egyptian government does not serve the interests of capital, Western investors can defund the country by rapidly withdrawing capital, thereby driving up interest rates and destroying the Egyptian currency. Not surprisingly, the maintenance of liberalized capital flows is a key demand made on the new Egyptian government, likewise tied to the continued extension of aid and credit, as the Egyptian business class warns the ongoing revolutionary movement of the dangers of capital flight. Ominously, Moody’s Investor Service downgraded its rating for five major Egyptian banks, a move certain to provoke a reaction in international markets. Further liberalization and privatization, on the other hand, would almost certainly improve such ratings.

It is for these reasons that, with Egypt in danger of bankruptcy, members of the transitional government have gone before one set of international bankers after another, pleading for credit and reassuring them that those in power remain committed to neoliberal policies. As a representative of the current government said at the May 20–21 meeting of the European Bank for Reconstruction and Development (which was designed at the end of the Cold War to restructure the economies of Eastern Europe in accordance with free-market principles, with disastrous results), “the current transition government remains committed to the open market approach, which Egypt will further pursue at an accelerated rate following upcoming election.”19 The World Bank, IMF, G8, and the Gulf Cooperation Council states have attached similar declarations to pledges of aid and support.

The military-appointed Egyptian leadership has made it clear that these are not just empty promises. In order to ensure the continuation of such financial flows and consolidate domestic class power, the transitional government has outlawed all labor strikes (punishable by prison time or a fine of up to $84,000) and forcibly cracked down on protests.20 Such efforts to demobilize labor have been complemented by a coordinated attempt to split the coalition between the workers and the urban youth movement. As labor actions persist, with many workers pushing to establish more independent labor unions with a larger say in production and political processes, state television and radio stations, while praising the protesters in Tahrir, have continuously denounced the striking workers as selfish and intent on destroying the economy. Even Wael Ghonim, the Google executive who was viewed as a leader of sorts within the urban movement, recently tweeted, “Dear Egyptians, go back to your work on Sunday. Work like never before and help Egypt become a developed country.”21 The Egyptian capitalist class and its international allies hope that by enacting mild political reforms, such as the freedom to organize political parties and speak more freely, the urban movement can be appeased and more radical social transformation and democratization forestalled.

Fears that the Egyptian uprising will turn explicitly anti-capitalist were also likely behind the declarations of support for “social justice” by the head of the IMF’s Egypt mission after the conclusion of a deal negotiated in secret with Mubarak-appointed Egyptian Finance Minister Samir Awat for $3 billion in loans.22 By supporting minor changes, such as slight increases in the minimum wage, the IMF also hopes to appease the urban movement and separate it from the workers, preserving the hegemony of the capitalist class and U.S.-aligned Army. Indeed, as the ILO pointed out, since the majority of Egyptians work in the so-called “informal sector,” such changes are merely cosmetic and are unlikely to substantially improve the lives of workers.23 So far, however, such efforts to divide the workers and the urban youth movement have not been successful: under tremendous pressure from ongoing demonstrations in Cairo and continual labor disruptions, the regime abruptly announced that it would reject all loans from the IMF and World Bank.

The struggle, however, goes on. As protests and labor actions continue across Egypt, the government announced that it would focus on deficit reduction in lieu of the IMF and World Bank loans in order to satisfy international markets. Nonetheless, ongoing strikes across the country have forced the ruling military junta to increase the minimum wage sixfold, while a plethora of new, independent unions have sprung up across Egypt. Ongoing dissatisfaction has also forced interim Prime Minister Essam Sharaf to promise a cabinet reshuffle. But the appointment of Hazem Beblawi, a seventy-four year old economics professor who has been associated with the widely despised neoliberal reforms, to the post of finance minister has again provoked outrage. Indeed, Beblawi has declared that he would consider accepting loans from the IMF, while refusing to rework the widely criticized budget produced by his predecessor, Mubarak-appointed Finance Minister Samir Radwan. The revolutionaries in Tahrir and those in the factories have together denounced Radwan’s budget as blind to the demands of the revolution for social justice.24

As huge amounts of aid from the United States and its allies to the military rulers of Egypt continue to flow unabated, Egypt is at a crossroads: it can continue to serve as an appendage of the global U.S. empire and transnational capital, or chart a more independent course. People across Latin America and Asia have already made significant strides toward taking matters into their own hands, defying the will of the United States and embarking upon social transformations that have improved millions of lives. Whether Egypt will be the first Middle Eastern state to follow them in their new course, or remain an imperial vassal under the thumb of global capitalism, remains to be seen.

Notes

↩ Yasser El-Shimy, “Egypt’s Struggle for Freedom,” Foreign Policy, January 27, 2011, http://www.foreignpolicy.com. For the data on the growth of per capita GDP, see “World Economic and Financial Surveys, World Economic Outlook Database, April 2006,” http://imf.org.